Light Reading For Labor Day: 2007 Annual US Court Report

When you're not preoccupied wiping BBQ sauce from your hands (and children's faces) this weekend, the Statistics Division for the Administrative Office of U.S. Courts released its annual report (all 416 pages) on "Judicial Business of the United States Courts."

Some interesting findings:

• After rising 14 percent in 2006, filings in the Federal Circuit fell 13 percent in 2007 (down 227 appeals) to 1,545, almost the same as total filings in 2003. The decreases appear to be related primarily to reductions in non-patent appeals (e.g., Merit System Protection Board, CAVC, etc.).

• As of September 30, 2007, 34 cases appealed from the USPTO were pending at the CAFC, as compared to 51 cases pending the year before.

• The Eastern District of Texas received more than 250 cases related to patents and reported higher filings of contract cases and prisoner petitions.

• In the district courts, 2,896 patent cases were launched in 2007, which is a slight bump (2.3%) from the 2,830 cases filed in 2006. To date, the biggest year for patent cases was 2004, where 3,075 cases were filed.

• Pendency of patent cases appears to be up: 353 patent cases were pending 3 years or more in 2006, as compared to 408 cases in 2007.

What was somewhat surprising was that, in general, little has changed in terms of the raw number of cases filed, terminated, and pending.


Read/download the entire report here (link)

See AmLaw Daily "Federal Court Statistics for 2007 Suggest Civil Courts Functioning As Expected" (link)

Patent Reform Touches DNC in Denver

From the "Tech Daily Dose" for Congressional Daily:

Rep. Zoe Lofgren, D-Calif., told a crowd in Denver on Tuesday that it is crucial for Congress to pass legislation to update the U.S. patent system next year -- even if the measure is a scaled back version of the broad, controversial language that was in play during the 110th Congress. The House passed its patent bill but a companion stalled in the Senate.

Lofgren, who represents the Bay Area and is a key member of the House Judiciary Committee, said a new effort should begin with "things we know we can agree on." A proposal that would curb judicial "venue-shopping" for favorable courts is critical as is language to address patent abuses, she said. "How do you legally set a framework that prevents abuses and allows for a vigorous system that protects intellectual property?" Lofgren asked aloud. "It's not easy to come up with solutions."

Read the short article here (link)

USPTO Seeks Volunteers for "Continuing Education for Practitioners" Program

From a recent USPTO news release:

The USPTO is developing a Continuing Education for Practitioners (“CEP”) system for on-line delivery of educational materials to patent practitioners, and is seeking help in piloting the on-line system. The CEP system is built on the recognition that a smoothly operating patent system requires well-qualified USPTO personnel working hand-in-hand with up-to-date patent practitioners. The goal is to increase efficiency, reduce pendency, and improve quality in the patent process. Additional information concerning the CEP system and the pilot test is provided below.

The CEP System

The CEP program would present brief educational materials concerning recent USPTO rule changes, revised patent examination guidelines, or the like. The practitioner would respond to one or more verification questions or prompts after reviewing the educational materials. The verification questions will be drawn directly from the training material and the practitioner will have ready access to the educational material while responding to the verification questions. In other words, the verification questions are designed to verify the practitioner has reviewed the materials; they are not a test of knowledge or skills.

The total time spent reviewing the educational materials and responding to verification questions should be approximately one hour. Practitioners would be required to complete one CEP program per year. As envisioned, the system would automatically notify practitioners of the training requirements, send appropriate reminder notices, and track completion. No fee will be charged to access the training materials; a fee would accrue only for failing to timely complete the training.

You may volunteer or submit questions on the pilot program by sending an e-mail to OEDonline@uspto.gov. The e-mail should include the name, registration number, telephone number, and e-mail address for the volunteer. Telephone inquiries concerning the pilot test may be directed to Bill Griffin (571-272-4097) in the Office of Enrollment and Discipline.

View the news release here.

Pending Study Suggests Plaintiffs Should Settle, Rather Than Litigate

While it isn't patent-specific, a somewhat controversial study will be published in the Journal of Empirical Legal Studies that looked at 2,054 cases that went to trial from 2002 to 2005 to see if parties are better off settling rather than going to trial.

Of course, one of the problems with such a study is that you can only make one-way determinations when evaluating litigation decisions. In other words, the only useful data would be refused settlement offers (that aren't sealed) compared to related jury verdicts. Nevertheless, some potentially interesting findings were made:

Generally, defendants were "wrong to go to trial" less often than plaintiffs - for defendants, the choice to litigate was wrong in 24 percent of cases, while plaintiffs were wrong in 61 percent of cases. In just 15 percent of cases, both sides were right to go to trial.

However, while defendants were wrong less often, the price for being wrong was substantially greater - getting it wrong cost plaintiffs about $43,000. For defendants, the cost was $1.1 million.

[M]ost of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer. “The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more,” said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.

As part of the study, which is the biggest of its kind to date, the authors surveyed trial outcomes over 40 years until 2004. They found that over time, poor decisions to go to trial have actually become more frequent.

The study has attracted the attention of the New York Time, that wrote in a recent article:

[T]he study tried to account for that possibility and found that factors like the years of experience, rank of a lawyer’s law school and the size of a law firm were less helpful in predicting the decision to go to trial. More significant was the type of case.

For example, poor decisions by plaintiffs to go to trial “are associated with cases in which contingency fee arrangements are common,” according to the report. “On the defense side, high error rates are noted in cases where insurance coverage is generally unavailable.”

The findings are consistent with research on human behavior and responses to risk,
said Martin A. Asher, an economist at the University of Pennsylvania and a co-author. For example, psychologists have found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.

“If you approach a class of students and say, I’ll either write you a check for $200, or we can flip a coin and I will pay you nothing or $500,” most students will take the $200 rather than risk getting nothing, Mr. Asher said.

But reverse the situation, so that students have to write the check, and they will choose to flip the coin, risking a bigger loss because they hope to pay nothing at all, he continued. “They’ll take the gamble.”

Read NYT: "Study Finds Settling Is Better Than Going to Trial" (link) (graphic)

See ABA Journal: "Most Plaintiffs Who Reject Settlement Offers Do Worse at Trial" (link)

CAFC: "Original" Applications Include Continuations For the Purposes Of Inter Partes Reexam

Cooper Technologies Co. v. Director U.S. Patent and Trademark Office, (08-1130), August 19, 2008

Pursuant to section 4608 of the American Inventors Protection Act of 1999 (AIPA), the inter partes reexamination procedure is available for "any patent that issues from an original application filed in the United States on or after" November 29, 1999

Cooper challenged the propriety of an inter-partes reexamination request on a continuation patent, filed after November 29, 1999, whose parent applications were filed before that date. According to Cooper, the continuation did not qualify as an "original application" for the purposes of the AIPA. The PTO argued that "oringal applications" included continuations and other related applications

The CAFC looked to legislative and PTO rulemaking histories to determine whether PTO pronunciations on the meaning of "original application" were "procedural" or "substantive." The CAFC clearly found that the PTO's remarks were procedural, thus deserving of increased, Chevron-type deference on review.

In this case, the Patent Office’s interpretation of "original application" does not effect any change in existing law or policy; rather, it is a prospective clarification of ambiguous statutory language regarding a matter of procedure. It is therefore "interpretive"- rather than "substantive" . . . Because the Patent Office is specifically charged with administering statutory provisions relating to "the conduct of proceedings in the Office," 35 U.S.C. § 2(a)(2)(A), we give Chevron deference to its interpretations of those provisions.

Under the two-step Chevron analysis, the reviewing court (1) must "always first determine ‘whether Congress has directly spoken to the precise question at issue.’" When a phrase is not a defined term in a statute, and when the statutory context does not provide any "concrete indication of Congress’s intended meaning," the reviewing court (2) examines "whether, in its own interpretation of its responsibilities under the Act, the agency charged with the everyday administration of the provision applies ‘a permissible construction.’"

On the term "original application," the CAFC found that the term as used in the statute did not have an "established meaning in patent law." Citing numerous ambiguities in the PTO's documentation and the legislative history, the court could not find anything in the legislative history that makes Congress’s intended meaning of "original application" clear.

Turning to the PTO's interpretations of "original application," the CAFC found the PTO's interpretations permissible:

Reissue

The Patent Office [points out] that its interpretation of section 4608 does not foreclose inter partes reexamination of reissue patents, but simply limits those proceedings to reissues of original applications filed after November 29, 1999. Such reissues are deemed by operation of law to replace the surrendered originals and, thus, are entitled to treatment as original patents. See 35 U.S.C. § 252. We agree that this interpretation is reasonable.

Continuations

Cooper argued that allowing inter-partes reexaminations on continuations would violate 35 USC § 120 which states "An application . . . shall have the same effect, as to such invention, as though filed on the date of the prior application . . . or on an application similarly entitled to the benefit of the filing date of the first application." The CAFC disagreed with Cooper:

Cooper’s argument misconstrues section 120. The title of section 120 is "Benefit of earlier filing date in the United States." . . . The "effect" described in section 120 is the benefit of the earlier filing date - i.e., the benefit for purposes of priority and section 112; the statute itself makes this clear in the clause "or on an application similarity entitled to the benefit of the filing date of the first application." . . . Nothing in section 120 guarantees that a continuation filed after the effective date of the AIPA will be exempt from inter partes reexamination, just because its parent application
is . . . Construing section 120 . . . we held "[i]n essence, ‘having the same effect’ means having the benefit of the filing date of the earlier filed application" - i.e., the benefit of priority.

[W]e conclude that the Patent Office’s interpretation of section 4608 is permissible and therefore entitled to deference. Under the Patent Office’s construction, "original application" includes continuation applications.

AFFIRMED

Gary Odom, a.k.a. Patent Hawk, Sues Microsoft for Patent Infringement

Gary announced yesterday on his patent blog site Patent Prospector, that he has filed a complaint in the Eastern District of Texas, accusing Microsoft of infringing U.S. Patent 7,363,592, titled "Tool Group Manipulations."

Download a copy of the complaint here.

CAFC Finds Infringement Under Doctrine of Equivalents, but Limits Injunctive Relief

Voda v. Cordis Corp., 07-1297, August 18, 2008

After a jury trial, the district court found that Cordis infringed Voda's patent related to cardiac guide catheters. On appeal, Cordin argued, among other things, that the district court erred in finding infringement under the doctrine of equivalents (DOE). Voda appealed the district court's denial of a permanent injunction.

For the DOE, the CAFC reiterated that two tests for equivalence are used:

This court applies two articulations of the test for equivalence. See Warner-Jenkinson, 520 U.S. at 40 (explaining that different phrasings of the test for equivalence may be "more suitable to different cases, depending on their particular facts"). Under the insubstantial differences test, "[a]n element in the accused device is equivalent to a claim limitation if the only differences between the two are insubstantial." Honeywell Int’l Inc. v. Hamilton Sundstrand Corp., 370 F.3d 1131, 1139 (Fed. Cir 2004). Alternatively, under the function-way-result test, an element in the accused device is equivalent to a claim limitation if it "performs substantially the same function in substantially the same way to obtain substantially the same result." Schoell v. Regal Marine Indus., Inc., 247 F.3d 1202, 1209-10 (Fed. Cir. 2001).

Cordis took issue with a claim term that recited "a first substantially straight leg" and "a second substantially straight leg." According to Cordis, their curved catheter did not meet this limitation in certain claims. The CAFC disagreed:

[W]e conclude that Voda introduced substantial evidence establishing that the redesigned curve portion of the XB catheter meets the straight and substantially straight limitations under the doctrine of equivalents. One of Voda’s experts testified that the difference in shape between the redesigned curve portion and a straight portion was so insubstantial that cardiologists would have difficulty distinguishing the two during use. There was also testimony that the redesigned curve portion performed the same function as a straight portion, in the same way, to achieve the same result.

On the denial of a permanent injunction, Vordis, who is an individual inventor, argued that irreparable harm would come to his exclusive licensee. However, Vordis did not argue that he himself would suffer the same injury. The CAFC found this fatal to his argument:

We disagree with Voda that the denial of a permanent injunction in this case conflicts with eBay. The Supreme Court held only that patent owners that license their patents rather than practice them "may be able to satisfy the traditional four-factor test" for a permanent injunction. Id. (emphasis added). Nothing in eBay eliminates the requirement that the party seeking a permanent injunction must show that "it has suffered an irreparable injury." Id. (emphasis added). Moreover, we conclude that the district court did not clearly err in finding that Voda failed to show that Cordis’s infringement caused him irreparable injury. In addition, we find that the district court did not clearly err or abuse its discretion in finding that monetary damages were adequate to compensate Voda. Accordingly, we affirm the district court’s denial of Voda’s request for a permanent injunction.

Are We Heading for a "Subprime Patent Crisis"?

Alberto Barrionuevo, president of the anti-software-patent Foundation for a Free Information Infrastructure (FFII), seems to think so:

In many countries, many regulations (financial controls) were removed and so the market was finally flooded by what any common person would denominate "fake money". The same fake money as the one created with a fake notes machine, out just that much more complex and nicely sold.

But equally, and curiously roughly matching in dates, it has happened in the patent system during the last ten to fifteen years mainly. The regulations have been raised time ago. To get a patent has become almost for free. No innovation effort is almost needed. No innovative step almost. No disclosing of technical knowledge is needed. No invention "as such" is needed, using the patent jargon words. Artificial complexity of the system has reached levels where only the experts bureaucrats working on it understand it. The innovation of the bureaucracy reigns. Real inventors, formerly experienced and brightly engineers, have been replaced by patent technocrats and patent trolls. Those same patent technocrats who indeed decide, with little or no political implication, the patent policy of some of the biggest economical sectors of the
world.

The result of this is a patent inflation. The most important patent offices of the world (mainly the namely "Trilateral") have granted surely some millions of subprime patents… that at the end mean fake assets and fake money. Many of these patents are fake because imprecise, too wide and/or non inventive, but many others are fake because are just out of the limits of the patentability. Their subject matter never should have constituted an "invention", but they were granted. "Obvious" is a word who lost it sense time ago.

[S]o, Great Patent Sirs, just continue enjoying today the patent pollution party.

But remember that the hangover will come soon or later and the crisis will reach all the technology market but specially the patent establishment.

In Spanish we have an old saying for this: "A todo cerdo le llega su San
Martín".

Read Barrionuevo's post on Digital Majority here.

BMC/Muniauction Decisions Sink Global Patent Holdings Joint Infringement Claim

Global Patent Holdings, LLC v. Panthers BRHC LLC, No. 9:08-cv-80013-KAM, August 12, 2008

Global Patent Holdings (GPH) sued Panthers for infringing U.S. Patent Number 5,253,341, known as the “Remote Query Communication System” patent (also known as the "JPEG patent"). In its complaint, GPH alleged that infringement takes place through the joint action of both Defendant and the website user, because Defendant’s website “controls and directs the performance of each of the method steps of claim 17 which are not performed” by Defendant itself.

The Panthers moved to dismiss the complaint as insufficient to state a claim for direct
infringement under FRCP 12(b)(6). Judge Marra granted the motion.

[I]t appears that the level of “direction or control” the Federal Circuit intended was not mere guidance or instruction in how to conduct some of the steps of the method patent. Instead, the court indicates that the third party must perform the steps of the patented process by virtue of a contractual obligation or other relationship that gives rise to vicarious liability in order for a court to find “direction or control.” Without this kind of relationship, the Court does not believe that a finding of “joint infringement” is warranted under BMC Resources.

The parties agree that the ‘341 patent requires two individuals or entities to complete all of the method’s steps (at least in terms of Defendant’s alleged infringement) – a remote computer user, and the website server. Further, at oral argument, Plaintiff conceded that the patented method does not begin until a computer user visits Defendant’s website. If no person ever visited Defendant’s website, then Plaintiff’s patent would never be infringed. The initial step of the ‘341 patent calls for action on the part of the remote computer user. Plaintiff claims that this action is “controlled” by Defendant because Defendant puts Javascript programs on the remote user’s computer to allow the process to begin. Nevertheless, the Court does not believe this “control” is sufficient “direction or control” over the remote computer user. Plaintiff has, in no way, alleged that remote users are contractually bound to visit the website, it has not alleged that the remote users are Defendant’s agents who visit the website within the scope of their agency relationship nor has it alleged any facts which would render Defendant otherwise vicariously liable for the acts of the remote user. Using Plaintiff’s analogy, Defendant may give home users the keys to the truck, but home users have no obligation to use those keys to start the truck and drive away.

In this case, the patented process cannot start until the remote user visits Defendant’s website. Plaintiff has not alleged that these individuals visit Defendant’s website under Defendant’s “direction or control.” Therefore, the Court cannot conclude that Defendant and the remote users are “joint infringers” under BMC Resources. Since Plaintiff has not alleged sufficiently that Defendant is a joint infringer, and Plaintiff has not alleged that Defendant carries out all the steps of the patented method, Plaintiff’s claim for direct patent infringement must be dismissed as inadequate.

Read/download the opinion here (link)


Hal Wegner has also just circulated a new paper addressing this issue titled "E-Commerce Claims: The Single Actor Direct Infringer." In the paper, Wegner states:

In view of Muniauction, recently granted patents with claims that do not have a single actor direct infringer should be resubmitted for reissue to fix the problem before expiration of the two year broadening deadline for a reissue and, of course, pending claims should be carefully considered for amendment.

Download Wegner's paper, along with a copy of IPO's amicus brief for Muniauction here (link)

PTO Limits Scope of Patent Agent Representation

Today's Federal Register issued final rulemaking, effective September 15, 2008, that proscribes a patent agent from giving an opinion on infringement or validity, except for situations where an opinion of validity is "reasonably necessary and incident to the preparation and prosecution of patent applications or other proceedings before the Office involving a patent application or patent." The PTO states:

Whether a validity opinion involves practice before the Office depends on the circumstances in which the opinion is sought and furnished. For example, an opinion of the validity of another party’s patent when the client is contemplating litigation and not seeking reexamination of the other party’s patent could not be reasonably necessary and incident to the preparation and prosecution of patent applications or other proceedings before the Office involving a patent application or patent. In such situations, the opinion may constitute unauthorized practice of law. See Mahoning Cty. Bar Assn. v. Harpman, 608 N.E.2d 872 (Ohio Bd.Unauth.Prac. 1993). Similarly, a validity opinion for the sale or purchase of the patent is neither the preparation nor the prosecution of a patent application. Likewise, the opinion is not a proceeding before the Office involving a patent application or patent. Registration to
practice before the Office in patent cases does not authorize a person to provide a validity opinion that is not reasonably necessary and incident to representing parties before the Office. In contrast, a validity opinion issued in contemplation of filing a request for reexamination would be in contemplation of a proceeding before the Office involving a patent.

In no circumstance would practice before the Office include the rendering of opinions on infringement. Under the law, the Office has no authority to resolve infringement cases. Thus, registration to practice before the Office in patent cases does not include authority to render infringement opinions. See Mahoning Cty. Bar Assn. v. Harpman, supra.

The rules go further by disallowing a patent agent to prepare most patent assignments, with one narrow exception. Specifically, the new rule sanctions

Drafting an assignment or causing an assignment to be executed for the patent owner in contemplation of filing or prosecution of a patent application for the patent owner, where the practitioner represents the patent owner after a patent issues in a proceeding before the Office, and when drafting the assignment the practitioner does no more than replicate the terms of a previously existing oral or written obligation of assignment from one person or party to another person or party.

Read/download the new rules here (link)

Also see Revision of Patent Fees for Fiscal Year 2009: Final Rule .

BPAI Precedential Opinion: Examiners Must Provide "Reasoned, Fact-Based" Evidence For Prior Art Rejections

Ex Parte Whalen II, Appeal 2007-4423, July 23, 2008

Whalen's application claimed a composition for embolizing an aneurism, which the Examiner rejected for anticipation, and obviousness.

The primary issue in the rejections centered around a claim element reciting embolic compositions having a viscosity of at least 150cSt (centiStokes) at 40 degrees C. While the prior art disclosed embolyc compositions, they did not disclose the exact viscosity specified in the claim.

The examiner's rejection stated that the prior art "inherently" contained the same viscosity because they "comprise similar components used in overlapping ranges of concentrations as those claimed." Alternately, the Examiner concluded that the claimed compositions would have been obvious because "it would have been prima facie obvious to optimize the viscosity range of [the known] compositions by routine experimentation."

The BAPI reversed the examiner on both inherency and obviousness.

The Examiner has not provided an adequate basis – based on evidence or scientific reasoning – to support the finding that the “compositions disclosed by Evans inherently possess the same viscosity . . . as the instantly claimed invention” . . . The Examiner reasons that “Evans’ compositions comprise similar component[s] used in overlapping ranges of concentrations,” but even if some of the compositions encompassed by Evans’ broad disclosure might have a viscosity of 150 cSt at 40° C, that possibility is not adequate to support a finding of inherent anticipation.

“Inherency . . . may not be established by probabilities or possibilities. The mere fact that a certain thing may result from a given set of circumstances is not sufficient.” In re Oelrich, 666 F.2d 578, 581 (CCPA 1981). See also Ex parte Skinner, 2 USPQ2d 1788, 1789 (BPAI 1986) (“[T]he examiner must provide some evidence or scientific reasoning to establish the reasonableness of the examiner’s belief that the functional limitation is an inherent characteristic of the prior art” before the burden is shifted to the applicant to disprove the inherency.).

On obviousness, the Board stated:

While “the discovery of an optimum value of a variable in a known process is normally obvious,” In re Antonie, 559 F.2d 618, 620 (CCPA 1977), this is not always the case. One exception to the rule is where the parameter optimized was not recognized in the prior art as one that would affect the results. Id.

Here, the Examiner has not pointed to any teaching in the cited references, or provided any explanation based on scientific reasoning, that would support the conclusion that those skilled in the art would have considered it obvious to “optimize” the prior art compositions by increasing their viscosity to the level recited in the claims. No reason to have done so is apparent to us based on the record. On the contrary, the references all suggest that low viscosity was a desired property in embolic compositions.

* * *

The U.S. Supreme Court recently held that rigid and mandatory application of the “teaching-suggestion-motivation,” or TSM, test is incompatible with its precedents. KSR Int’l Co. v. Teleflex Inc., 127 S.Ct. 1727, 1741 (2007). The Court did not, however, discard the TSM test completely; it noted that its precedents show that an invention “composed of several elements is not proved obvious merely by demonstrating that each of its elements was, independently, known in the prior art.” Id.

The Court held that the TSM test must be applied flexibly, and take into account a number of factors “in order to determine whether there was an apparent reason to combine the known elements in the fashion claimed.” Id. at 1740-41. Despite this flexibility, however, the Court stated that “it can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine the [prior art] elements in the way the claimed new invention does.” Id. “To facilitate review, this analysis should be made explicit.” Id.

[W]hen the prior art teaches away from the claimed solution as presented here . . . obviousness cannot be proven merely by showing that a known composition could have been modified by routine experimentation or solely on the expectation of success; it must be shown that those of ordinary skill in the art would have had some apparent reason to modify the known composition in a way that would result in the claimed composition.

REVERSED

Patent Reform Crawling Back In 2008? Lemley Proposal For Damages May Provide Answers

Friday's CongressDaily reported that Senate Minority Whip Kyl and his staff are in the process of drafting patent reform legislation, and they are expected to unveil their proposal in September. According to sources, the draft "is said to be much different from the version introduced by Senate Judiciary Chairman Patrick Leahy and Sen. Orrin Hatch."

While the details have not been revealed, the legislation is expected to address damages, post-grant review, inequitable conduct and "patent quality initiatives."

On damages, "litigants would be encouraged to use precise economic analyses to determine damages rather than less exact calculations." Post-grant reviews would be available for 12-18 months after issue, where reviews would be limited to issues of novelty and obviousness. On inequitable conduct, the legislation would "would require patent applicants to be more forthcoming to the PTO or face penalties." However, unlike previous legislation, the new proposal would address allegations of misconduct through administrative proceedings rather than in the courts.

Also, submission of search reports and analysis relevant to patentability will be required for every application. Commerce Secretary Gutierrez previously wrote to lawmakers that this provision would be "the strongest step toward improved patent quality."

For more information, see

- "Kyl Maps Out A Separate Course On Patent Legislation" (link)

- "Groups Plot Strategy For Patent Overhaul In Next Congress" (link)

Issues surrounding damages continues to divide the patent community however. Critics of the current regime argue that "reasonable royalty" damages are overcompensating (non-practicing) patentees. Accordingly, damage apportionment has been put forward as a means to curb the perceived overcompensation.

However, should Congress tweak reasonable royalty compensation, or should they look somewhere else? A recent paper by professor Mark Lemley suggests that easing restrictions on "lost profits" damages may provide a better means for market competitors to recoup damages, while reducing tendencies of courts to provide "kickers" on reasonable royalties. From the abstract:

[T]he lines between lost profits and reasonable royalties are blurring. In significant part this is because courts have insisted on strict standards of proof for entitlement to lost profits. Specifically, patentees must prove demand for the patented product, the absence of noninfringing substitutes, the ability to meet additional demand in the absence of infringement, and the proportion of those sales that represent profits. This in turn means that many patent owners who have in fact probably lost sales to infringement cannot prove lost profits damages, and turn to the reasonable royalty measure. The result is that courts have distorted the reasonable royalty measure in various ways, adding "kickers" to increase damages, artificially raising the reasonable royalty rate, or importing inapposite concepts like the "entire market value rule" in an effort to compensate patent owners whose real remedy probably should have been in the lost profits category.

In Part I, I explain the strict requirements for proving lost profits, and give examples of patentees who have failed to meet these requirements. In Part II, I explain how relegating these patentees to reasonable royalties has led to problematic changes in reasonable royalty law. Finally, I suggest in Part III that courts should draw a sharp division between the injury suffered by patentees who compete with infringers and those who do not. Patentees who compete should be entitled to the best estimate of lost profits, even if not all elements of proof are available. Doing so will avoid overcompensating patent owners in reasonable royalty cases.

Read more of Lemley's paper, titled "Distinguishing Lost Profits from Reasonable Royalties" here (link)

BPAI Appointments: Fixed

Statement by the Press Secretary

WASHINGTON--(BUSINESS WIRE)--

On Tuesday, August 12, 2008, the President signed into law:

S. 3295, which provides for the appointment of administrative patent judges and administrative trademark judges in the U.S. Patent and Trademark Office.

(LINK)

W.D. Wis.: All Instances of Materiality Should Be Argued for Inequitable Conduct

Silicon Graphics v. ATI Technologies, Inc., W.D. Wis., 06-cv-611-bbc (August 1, 2008)

Silicon Graphics (SG) sued ATI for infringement of 3 patents. ATI counterclaimed that the patents were invalid and unenforceable. In pretrial rulings, Judge Crabb found no basis for infringement on 2 of the patents, and SG conceded at the final pretrial conference that the remaining patent was not infringed and agreed to dismiss the claims with prejudice. ATI pressed forward with the claims of invalidity and unenforceability, but was unsuccessful at trial.

As part of its inequitable conduct argument, ATI argued that a prior art reference ("the Baum patent") anticipated the claims of one of the patents-in-suit. The jury found that the Baum patent did not anticipate, and Judge Crabb dismissed the inequitable conduct case. ATI moved for a new trial, arguing that the issue the court needed to reach was not whether the Baum patent anticipated, which is what the jury decided, but rather whether the Baum patent
was material to the patent office. Judge Crabb denied the motion:

Defendants are correct when they argue that anticipation and materiality can be two different matters. The flaw in their argument is that they never advanced any other theory of materiality. Instead, in preparation for the inequitable conduct phase of trial, they talked of materiality only in terms of anticipation by the Baum patent. See Defendants’ Proposed Findings of Fact for Potential Non-Jury Issues, dkt. #459, at 46 (“The [Baum] patent anticipates at least claims 17 and 22 of the ‘327 patent”; “Because the [Baum] patent anticipates ‘327 patent claims, the [Baum] patent and application ‘establishes by itself or in combination with other information, a prima facie case of unpatentability of a claim,’ and is material art under 37 C.F.R. § 1.56.”). Once the jury determined that the Baum patent did not anticipate, defendants’ case of inequitable conduct could not go forward. Although defendants worked hard to convince the court that they should be allowed to argue additional reasons for a finding of inequitable conduct, their efforts failed. It was too late for them to go forward on a wholly new theory they had never disclosed to plaintiff.

Defendants suggest that their proposed finding of fact, #450, dkt. #459 at 65, was sufficient to give notice of their theory of inequitable conduct. A reading of the proposed finding dispenses with that argument. In full, the proposal reads: “The ‘450 patent and application are highly material prior art because they invalidate ‘327 patent claims and/or present a prima facie case of unpatentability.” This statement falls far short of being a sufficient factual proposal on which to base an inequitable conduct claim. Defendants do not say what other showing of materiality they could have made; if they are contending that they could have shown that Baum made the ‘327 patent obvious, they never raised this point at trial. I conclude that it was not error to dismiss defendants’ inequitable conduct claim without a trial.

Not surprisingly, each side requested attorney fees. Both sides were denied:

[35 U.S.C. § 285 and 28 U.S.C. § 1927] are aimed at exceptional cases in which the parties (or counsel, in the case of § 1927) have acted so outrageously as to be subject to sanctions. This is not one of those cases. Both sides prosecuted their cases vigorously and tenaciously. Both sides advanced and maintained positions that in hindsight they may regret. That is not exceptional or even unusual in litigation of this nature . . . This case would have been easier for counsel and the court to deal with had counsel for both sides confined their claims to those for which they had a stronger foundation, but determining which claims are the stronger ones is always easier at the end of the case than it is at the outset . . . Despite the more than 100 pages that the parties have devoted to the issue of defendants’ entitlement to fees and costs and the amount of such fees and costs, the resolution of the matter is straightforward. Fees and costs are awarded only to prevailing parties; in this suit neither side prevailed.

Read/download the opinion here (link).

USPTO Clarification: (Some) Continuation Rules Not Retroactive, Despite Appeal

The USPTO issued a clarification today, stating that practitioners should not try to overcompensate by taking "preparatory actions" for portfolios in light of the continuation rule appeal. Worry not: if the injunction is overturned at the CAFC (shudder), the PTO will not retroactively apply the rules in certain cases:

[T]he changes in 37 CFR 1.78(f)(1) and (f)(2) will only apply to applications filed on or after any new effective date that would be published by the USPTO after the removal of the injunction . . . [a]pplicants will only have to identify other commonly owned applications that satisfy the conditions set forth in 37 CFR 1.78(f)(1)(i) in applications that have a filing date on or after this new effective date. Similarly, the rebuttable presumption of 37 CFR 1.78(f)(2) will only apply to applications having an actual filing date on or after the effective date. Furthermore, the rebuttable presumption will only exist with respect to an application that satisfies the conditions set forth in 37 CFR 1.78(f)(2)(i) and also has a filing date on or after this new effective date.

Read the notice here.

Query: who on earth is making these filings that prompted the PTO "clarification"?

Bill Fixing BPAI Appointments Ready For Bush's Signature

On August 5, S.3295 was cleared from the Senate and presented to the President for signature. The Senate bill was referred from the House Committee on the Judiciary as H.R.6362.

The bill addresses the questioned consitutionality of the appointment of about 50 administrative patent and trademark appeals judges by amending title 35 section 6:

(c) Authority of the Secretary- The Secretary of Commerce may, in his or her discretion, deem the appointment of an administrative patent judge who, before the date of the enactment of this subsection, held office pursuant to an appointment by the Director to take effect on the date on which the Director initially appointed the administrative patent judge.

(d) Defense to Challenge of Appointment- It shall be a defense to a challenge to the appointment of an administrative patent judge on the basis of the judge's having been originally appointed by the Director that the administrative patent judge so appointed was acting as a de facto officer.

The Senate version was not materially changed from the House version, and was passed by unanimous consent.

Comments from Sen. Patrick Leahy [D-VT]:

These judges are currently appointed to their positions by the Director of the PTO. Our bill will change this process, so that the Secretary of Commerce, in consultation with the Director of the PTO, will appoint these judges, thus bringing the process more clearly in line with the appointments clause of the Constitution. This legislation will also allow the Secretary of Commerce to ratify the appointment of the current judges. A companion bill was introduced in the House.

It is important to ensure that the decisions made by these judges are allowed to stand on their merits, and that they are not nullified by a potential constitutional challenge to the appointment process somewhere down the line. By making this small change to the existing law, Congress can leave no doubt that the appointment of these judges complies fully with the process set out by the Constitution.

More information on S.3295 at GovTrack.

Read more from Law.com.

USPTO: Say Goodbye To Facsimile Submissions

The PTO is proposing to revise the rules of practice to limit the types of correspondence that may be submitted to the Office by facsimile. From the latest Federal Register:

[T]he Office believes that given: (1) The costs and quality concerns regarding facsimile transmitted correspondence; and (2) the newly upgraded EFS–Web electronic filing system, which offers the same benefit of quick submission to the particular area of the Office that needs to act on the correspondence, it is now appropriate to terminate the use of facsimile transmissions as a method for filing most correspondence intended to become part of the file record of a patent application, patent or reexamination proceeding. Specifically, correspondence that can be submitted via EFS–Web would no longer be accepted via facsimile transmission.

Also, the PTO is proposing a standardized font for all submissions:

[I]t is proposed to: (1) Increase the mandatory minimum font size where the font must have capital letters no smaller than 0.28 cm (0.11 inch) high (e.g., a font size of 12 point in Times New Roman); (2) establish that the newly proposed font size requirement applies to prosecution papers (specification, including the claims and abstract, drawings, and oath or declaration, reexamination request, any amendments or correction(s)) and any remarks, petitions, requests, affidavits or other papers submitted during prosecution of an application or a reexamination proceeding.

Read the entire notice here (link)

Comments should be sent by electronic mail over the Internet addressed to AC27.comments@uspto.gov. Written comments must be received on or before October 6, 2008.

The Advantages of Inter Partes Reexamination

Conventional wisdom used to be that a recommendation to an accused infringer to seek inter partes reexamination bordered on legal malpractice. While inter partes reexamination requests are relatively rare, their popularity is increasing. A primary reason for the increased popularity is the advantages that inter partes reexamination requests provide: (1) no presumption of validity, (2) broadest reasonable claim construction, (3) no discovery into the accused product, (3) direct involvement with technically trained decision makers at the PTO, and (4) advantageous treatment for stays oif litigation.

Tun-Jen Chiang, Assistant Professor of Law, George Mason University School of Law, recently published an article titled "The Advantages of Inter Partes Reexamination," where he discusses many of the advantages of inter partes reexamination listed above, and also provides some insight on "overcoming the ghost of litigation estoppel."

One of the issues for accused infringers is that PTO examiners are randomly selected, which injects uncertainty into the process. Chiang argues that the alternative can be potentially worse:

Because the plaintiff receives a great deal of deference in the selection of forum, and because patent infringement cases can usually be brought in any district nationwide, the jury will almost always be from the most favorable district that the patent owner can find. In short, the choice for an accused infringer is between a randomly selected PTO examiner and a jury selected by the patent owner as the arbiter of patent validity.

With regard to litigation estoppel, Chiang finds this fear "overblown":

In short, litigation estoppel prohibits accused infringers from having two bites at the apple–contesting validity in both the PTO and the district court. It is altogether irrational, however, to consider choosing the PTO in this dichotomy as “malpractice,” as the prevailing wisdom has done. It is similarly overblown that fear not being able to contest validity in litigation appears to have driven accused infringers to flee the PTO into the arms of Eastern District of Texas juries; without realizing this choice to contest validity in litigation equally foregoes an opportunity–the opportunity to contest validity in the PTO. An analogy would be a child who, being denied having both milk and cookies and forced to choose only one, chooses his less preferred option in a tantrum; such a child, of course, injures no one but himself.

Finally, when compared to ex parte reexaminations, the estoppel effect of inter partes proceedings aren't all that different:

An ex parte reexamination, of course, is relevant to the accused infringer only if the reexamination (including appeals of the PTO decision) concludes before or concurrently with the final judgment in litigation. Once final judgment is entered in litigation, the judgment is enforceable even if the patent is later declared invalid [See In re Translogic Tech., Inc., 504 F.3d 1249 (Fed. Cir. 2007)].

* * *

Once a prior art reference has been considered by the PTO, the presumption of validity becomes “especially difficult” to overcome. In practice, only a few cases have done so. While accused infringers may think they can relitigate validity after the PTO confirms the patent over newly discovered prior art in an ex parte reexamination, the ability to successfully litigate validity after reexamination is compromised. Rather than attempting to relitigate validity after losing the reexamination–with the heightened presumption of validity–accused infringers will likely be better off increasing their chances of preventing that loss in the first place, by having the opportunity to present their arguments to the PTO. While ex parte reexamination does not create litigation estoppel de facto, it comes fairly close to doing so.

Read/download Chiang's article here (link)

CAFC: Nonregulated Equipment Exempt From Hatch-Waxman "Safe Harbor"

Proveris Scientific Corp. v. Innovasystems Inc., (07-1428), August 5, 2008

Innova makes and sells a device known as the Optical Spray Analyzer ("OSA"), which measures the physical parameters of aerosol sprays used in nasal spray drug delivery devices. While the sprays are subject to FDA approval, the OSA is not. When Proveris sued for patent infringement, Innova countered that the device was covered under the safe harbor provision of the Hatch-Waxman Act, which states in 35 U.S.C. § 271(e)(1):

It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention. . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.

In essence, Innova argued that, since the equipment was used in connection with a regulated product, the equipment was covered as well. Relying on the Supreme Court's Eli Lilly decision, the CAFC disagreed.

[I]nnova’s OSA device is not subject to FDA premarket approval. Rather, FDA premarket approval is required only in the case of the aerosol drug delivery product whose spray plume characteristics the OSA measures. In short, Innova is not a party seeking FDA approval for a product in order to enter the market to compete with patentees. Because the OSA device is not subject to FDA premarket approval, and therefore faces no regulatory barriers to market entry upon patent expiration, Innova is not a party who, prior to enactment of the Hatch-Waxman Act, could be said to have been adversely affected by the second distortion. For this reason, we do not think Congress could have intended that the safe harbor of section 271(e)(1) apply to it. Put another way, insofar as its OSA device is concerned, Innova is not within the category of entities for whom the safe harbor provision was designed to provide relief.

AFFIRMED

WIPO Releases 2008 Worldwide Patent Report

The World Intellectual Property Organization (WIPO) has released "The World Patent Report: A Statistical Review," which is an annual publication, and the 2008 edition is the third edition in the series. The reports are part of a continuing effort at WIPO to "improve statistical information on patent activity covering as many countries as possible across the world and to develop and provide new indicators that are relevant to current policy issues."

Some notable statistics:

• Patent applications filed across the world are estimated to be 1.76 million, representing a 4.9% increase from the previous year. The number of filings worldwide by applicants from China, the Republic of Korea and the United States of America increased by 32.1%, 6.6% and 6.7% respectively.

• Although the number of patent applications filed across the world has increased at a steady pace, the rate of increase is less than the rate of increase observed for other economic indicators such as GDP and trade.

• Approximately 727,000 patents were granted across the world. Similar to patent filings, patent grants are concentrated in a small number of countries. Applicants from Japan, the United States of America, the Republic of Korea and Germany received 73% of total patent grants worldwide. Between 2000 and 2006, the number of patents granted to applicants from China and the Republic of Korea grew by 26.5% and 23.2% a year, respectively (average annual growth rate).

• Approximately 6.1 million patents were in force in 2006. The largest number of patents in force were in the United States of America (1.8 million in 2006). However, the majority of patents in force were owned by applicants from Japan.

• In 2005, a large number of patent filings were filed across the world in computer technology (144,594), telecommunications (116,770), and electrical machinery (121,350) technologies. Between 2001 and 2005, patent filings in computer technology, optics, and semiconductors grew by 5.3%, 5.0% and 4.9%, a year, respectively. There was a modest increase in pharmaceuticals filings (1.7%) and a decrease in biotechnology filings (-2.7%).

View the on-line report here (link)

Download a PDF copy here (link)